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Turkey: Economic Crisis Affects Caspian Region

  • Michael Lelyveld

A Turkish economic crisis could have consequences for countries in the Caspian region that are relying on petroleum exports to Ankara. A Washington consulting firm has already cut its long-term forecasts for Turkey's gas consumption by over 10 percent. RFE/RL's Michael Lelyveld reports.

Boston, 4 December 2000 (RFE/RL) -- The effects of an economic crisis in Turkey may soon be felt in the Caspian region, Central Asia and Russia, which hope to supply Ankara with energy. A leading consulting firm has already cut its long-term forecasts of Turkey's future demand for natural gas following an economic emergency that prompted a rapid response by the International Monetary Fund during the weekend. On Saturday, the Financial Times reported that interest rates on overnight loans in Turkey had shot up as high as 1,700 percent before dropping back to 700 percent. In 10 days, the central bank has lost nearly $6 billion in trying to defend Turkey's currency from a massive devaluation. At least one Turkish bank has reportedly failed following a probe of corruption in the financial sector, and leading German and British lenders have pulled their funds out of the country. The Turkish stock market has plunged to less than half its value from highs earlier this year. On Friday, thousands of civil service workers in Ankara staged a one-day strike over pay raises that were far below the rate of inflation. The IMF dispatched two teams to Ankara during the weekend and held out hopes of new loans by the end of this year. Reports suggest that the current liquidity crisis resulted from the central bank's abrupt efforts to implement an IMF anti-inflation program. The fears of foreign investors may also have been heightened by tensions over the terms for starting accession talks with the European Union. Whatever the cause, the trouble appears to have broken the steady pace of growth that Turkey has enjoyed since the start of IMF standby loans last December. On Friday, economists at the Petroleum Finance Company's Market Intelligence Service in Washington said in a report that Turkey's economic growth next year is likely to be cut from 5 percent to between 2 and 3 percent. The consultants believe that devaluation of the Turkish lira is likely and that some effects will be long-term. The group has reduced its estimates of Turkey's gas demand by 10 percent to 24,500 million cubic meters in 2005 and by 12 percent to 33,1000 million cubic meters in 2010. The significance of the numbers for other countries is that they were already far below Turkish official figures even before the downward revisions. For years, Turkey's government has been signing purchase agreements based on forecasts that the country's gas demand will be 54,000 million cubic meters in 2010. The Petroleum Finance Company's estimates are now 38 percent lower than the official forecasts. If the economists are right, it is likely to mean that some countries from the Caspian region and Central Asia will be unable to fulfill all their plans for gas exports. As the fastest-growing energy market in the region, Turkey has been the focal point of petroleum export planning for over five years.

Iran and Russia have already undertaken major pipeline projects to deliver more gas to Turkey starting in 2001. Azerbaijan is also hoping to start selling Caspian gas to Ankara in 2002 with reconstruction of a pipeline through Georgia. In addition, Turkmenistan has agreed to supply Turkey with 16,000 million cubic meters of gas. On Saturday, Iran announced a new agreement to more than double its gas purchases from Turkmenistan, perhaps allowing Turkmen gas to reach Turkey through the Iranian pipeline, which has already been built to the Turkish border. But even before the economic crisis, industry analysts had been warning for years that Turkey had committed itself to buying too much gas from too many countries. It now seems even less likely that all the commitments can be fulfilled. Turkey has also undertaken a host of costly power plant and infrastructure projects, as well as its share of the Baku-Ceyhan oil pipeline. Huge investments are needed at a time when foreign funding and the condition of Turkey's banks are in doubt. Quick IMF action may limit the damage and help Turkey to continue its economic growth. But with signs of an economic slowdown in Europe and the global economy, the environment for a speedy recovery may not be good. Even if the IMF moves quickly and confidence is restored, the sudden economic trouble may be an occasion for countries in the region to examine their strategies and the wisdom of relying on one market for so much of their export growth.